Tuesday, March 1, 2011

U.S. Manufacturing is Growing at Fastest Pace in Nearly Seven Years

Manufacturing continued its rapid growth in February as the PMI registered 61.4 percent, an increase of 0.6 percentage point when compared to January's reading of 60.8 percent. This is also the highest PMI reading since May 2004 when the index also registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

This growth is largely the result of Fed money pumping last year, especially that in the 4th quarter. However, a change in direction may not be too far ahead for the PMI. Since the first of the year, much of QE2 money pumping has ended up back at the Fed as excess reserves. If this trend in money flow, out of the system and into excess reserves, does not reverse itself, just as Keynesian trend followers start to turn bullish because of data like this ISM report, the stock market and economy are likely to turn downward.